The blog of the University of Edinburgh's PIR subject area

Mexico: the challenges of reform

On Monday 2 September, Mexican President Enrique Peña Nieto delivered his first annual report, traditionally given as a public address in Congress. This year however was different, because a teacher’s union had blocked access to the Congress (and the main international airport, many streets, the stock market and other institutions), so the speech was given from the safety of the President’s official residence.

His ambitious agenda includes an education reform that will result in tests for schoolteachers to see if they’re fit for the job. Many teachers are up in arms, believing that the old system where teaching posts were personal property to be bought, sold, and inherited is wrong and needs to be abolished. But they’re nervous that exams will be used against them.

It may seem strange that Mexican law enforcement would permit a union to block access to the Congress or the airport, but this paradox sums up the challenges that Mexico currently faces. The police and military have a reputation for harsh crackdowns on social movements. So this approach is a safety valve while Congress works out how many of their demands to take into account.

Peña Nieto – the new face of the post-Revolutionary ‘official’ party of Mexico – is young, energetic, serious, but also a bit stiff and formal. In office for nine months, his raft of reforms will only work if they are put into place with transparent, impartial, and capable regulators. In Mexico that’s a very big ask. And the fate of the reforms is unclear, as each measure comes with its own die-hard opponents. One of the most divisive is the plan to open the Mexican state-owned oil sector to private investors, including those from other countries. Pemex believes it needs partners to be able to invest in costly new projects like deep water exploration. Opponents believe it would sell out the precious national resource to gringos and violate the Constitution.

Meanwhile the president has turned a blind eye to drug trafficking, preferring to focus on crime more generally. In a throwback to the old days of nationalism and sovereignty-above-everything, he has reduced the close cooperation between American and Mexican agents that was encouraged by his predecessor, Felipe Calderon. Critics claim he simply wants to manage Mexico’s image more effectively and has no intention of trying to solve the problem of narcotrafficking. Americans are puzzled. We’re doing great things together to fight cartels, they say. Mexicans see it differently. You’re administering lie detector tests on our agents, flying drones deep into our territory, and your National Security Agency is reading our president’s emails.

The cartels will never be beaten as long as the American appetite for drugs remains voracious, and everyone knows it. There is no greater entrepreneurial or innovative spirit than a Mexican cartel boss. Cartels have moved drugs across the border by traditional means – backpacks, jets, trains, cars, trucks – and by less traditional means – catapult, tunnel, submarine. The previous president tried to defeat the “narcocracy” of northern Mexico and ended up with more than 50,000 dead on his hands – that’s about the same as the number of Americans who died in Vietnam. The old peace between politicians and pushers has given way to more confrontation, but the two sides still have much to do with each other. To pave the way for their shipments of narcotics, Mexican cartels are estimated to spend upwards of one billion dollars (not pesos) per year on bribes to local, state, and federal politicians, bureaucrats, judges, police, military and others.

Corruption is endemic. Corrupt politicians and police are sometimes caught by hidden cameras and tape recorders, but the task ahead is immense. On a recent visit, the head of the union for Norway’s Statoil (like Pemex, state-owned) explained that he earns a bit more than rig workers, around £60,000 a year. He lives modestly in Oslo. Pemex’s union leader Carlos Romero Deschamps, meanwhile, on an official salary of about £15,000 per year enjoys luxury cars, homes in Miami, and many other mysteriously-acquired benefits.

Gluttonous union chiefs routinely siphon off members’ contributions. The head of the biggest union in Latin America, the SNTE, is in prison on corruption charges, accused of diverting two hundred million dollars of union resources for herself, family and friends. She makes Deschamps seem like a choir boy. Union books, unsurprisingly, are not open to scrutiny by anyone – not their members, not government officials, not auditors.

But their members remain silent because they are the lucky ones. Enough trickles down to keep them happy. An astonishing 60% of Mexico’s workforce is in the informal economy – cleaning windscreens on street corners, selling pirate CDs on the Metro, tending gardens. They pay no taxes and therefore do not contribute to public finances, nor are they covered by many social programmes.

This is the downside to the low official unemployment figures, which are around 5%. Other parts of the economy look good at the aggregate level: public finances and inflation are in order, and growth is near 3%, not spectacular but solid.

But a lot remains to be done to ignite an economy which combines high-tech aerospace and car companies along with low-wage assembly plants. Competition, infrastructure, energy, and education all need modernizing before Mexico can hope to fulfil its potential. To make things work properly they don’t need more or better democracy. They need better institutions, regulators, transparency, and justice. They need to overcome the “rule of scofflaw.”

Mexico could be so much more. It is one of the richest countries on the planet in terms of biodiversity and natural resources. In the social fabric beats the warmest heart I have ever lived amongst; people of generosity and old-fashioned formality. They deserve better.